Economics Of Pessimism And Optimism: Theory Of Knightian Uncertainty And Its Applications by Kiyohiko G. NishimuraEconomics Of Pessimism And Optimism: Theory Of Knightian Uncertainty And Its Applications by Kiyohiko G. Nishimura

Economics Of Pessimism And Optimism: Theory Of Knightian Uncertainty And Its Applications

byKiyohiko G. Nishimura, Hiroyuki Ozaki

Hardcover | November 22, 2017

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This is the first book to investigate individual's pessimistic and optimistic prospects for the future and their economic consequences based on sound mathematical foundations. The book focuses on fundamental uncertainty called Knightian uncertainty, where the probability distribution governing uncertainty is unknown, and it provides the reader with methods to formulate how pessimism and optimism act in an economy in a strict and unified way. After presenting decision-theoretic foundations for prudent behaviors under Knightian uncertainty, the book applies these ideas to economic models that include portfolio inertia, indeterminacy of equilibria in the Arrow-Debreu economy and in a stochastic overlapping-generations economy, learning, dynamic asset-pricing models, search, real options, and liquidity preferences. The book then proceeds to characterizations of pessimistic (?-contaminated) and optimistic (?-exuberant) behaviors under Knightian uncertainty and  people's inherent pessimism (surprise aversion) and optimism (surprise loving).  Those characterizations are shown to be useful in understanding several observed behaviors in the global financial crisis and in its aftermath.  The book is highly recommended not only to researchers who wish to understand the mechanism of how pessimism and optimism affect economic phenomena, but also to policy makers contemplating effective economic policies whose success delicately hinges upon people's mindsets in the market.

Kiyohiko Nishimura is Professor at the National Graduate Institute for Policy Studies (GRIPS) and Professor Emeritus and Distinguished Project Research Fellow of the Center for Advanced Research in Finance at The University of Tokyo. Hiroyuki Ozaki is Professor of Economics at Keio University.

Kiyohiko G. NishimuraKiyohiko G. Nishimura is emeritus professor of economics and distinguished project research fellow at The University of Tokyo and a professor of economics in the National Graduate Institute for Public Policy (GRIPS). Before returning to academia, he was deputy governor of the Bank of Japan for 5 years until March 1...
Title:Economics Of Pessimism And Optimism: Theory Of Knightian Uncertainty And Its ApplicationsFormat:HardcoverDimensions:326 pagesPublished:November 22, 2017Publisher:Springer-Verlag/Sci-Tech/TradeLanguage:English

The following ISBNs are associated with this title:

ISBN - 10:4431559019

ISBN - 13:9784431559016


Table of Contents

1 Overall Introduction.- 2 Mathematics for Reading Later Chapters.- 3 Decision-Theoretic Foundations of Knightian Uncertainty.- 4 Portfolio Inertia.- 5 Equilibrium Indeterminacy in Arrow-Debreu Economy with Knightian Uncertainty.- 6 Monetary Equilibria and Knightian Uncertainty.- 7 Dynamic Programming.- 8 Dynamic Asset Pricing.- 9 Search and Knightian Uncertainty.- 10 Irreversible Investment and Knightian Uncertainty.- 11 Liquidity Preference and Knightian Uncertainty.- 12 A Simple Characterization of Pessimism and Optimism: e-Contamination Versus e-Exuberance.- 13 Persistent Pessimism and Optimism in Forecasts: Implicit Means and Law of Iterated Integrals.- 14 Learning Under Knightian Uncertainty.- 15 Areas of Further Research.- Appendix Proofs of Lemmas and Theorems.- Index.

Editorial Reviews

"It is especially striking that an economist as immersed in quantitative monetary policy issues as former Deputy Governor of the Bank of Japan Kiyohiko Nishimura would come away from that experience with an enhanced interest in rigorously modeling optimism and pessimism in terms of formal models that extend Bayesian decision theory to incorporate model ambiguity.  Nishimura and his co-author, Hiroyuki Ozaki have created this technically sophisticated and fascinating book that applies state-of-the-art models of model ambiguity to important decision problems in economics." (Thomas J. Sargent, Professor of Economics, New York University; Nobel Laureate in Economics, 2011)"The last decades witnessed a significant increase in the interest of economists on the distinction between risk and uncertainty that was first proposed by Frank Knight. The recent financial crisis made this topic even more relevant.  In this remarkable book, Professor Nishimura, an economic theorist who was Deputy Governor of the Bank of Japan during part of this difficult period, and Professor Ozaki, who made several theoretical contributions to dynamic decision making in the presence of risk, combine an exposition of advances in the formalization of "Knightian uncertainty" with several applications to decision problems in economics. An excellent textbook for an advanced graduate course, it also serves as an introduction to the topic for researchers who want to get acquainted with the field." (José A. Scheinkman, Charles and Lynn Zhang Professor of Economics at Columbia University and Theodore Wells '29 Professor of Economics Emeritus  at Princeton University)"This book is a rare example of economics at its best - starting at the very foundations, emphasizing the mathematical and philosophical underpinnings of economic theory, proceeding into micro- and macro-economic theory under uncertainty, and culminating with insights into economic crises. This opus represents the culmination of years of collaboration of two preeminent economists who are unique in their originality, depth, and scope. Given the formidable intellectual edifice of economic theory on the one hand, and phenomena such as the 2007-2008 crisis on the other, it takes no less to address the question, "What went wrong?" and to suggest how economics can be improved as a science, without giving up on the benefit of rigorous analysis." (Itzahk Gilboa, Professor, Eitan Berglas School of Economics, Tel-Aviv University and Professor of Economics and Decision Sciences, HEC, Paris)